Thursday, April 10, 2014

Bought More Gilead; Waiting on Regeneron

Just to follow up yesterday's post, this morning I added to my Gilead (GILD) holdings. Investors today are acting like it is a surprise that Gilead will have competition in the Hepatitis C market. Had they not been paying attention?

I believe Gilead can discount its Hep C therapies substantially if necessary to dominate the market, while still having high profit margins. In fact, I have believed all along that Gilead would have done better to price Sovaldi substantially lower and encourage larger numbers of patients to sign up quickly for the treatment. With hundreds of millions of potential patients in the world, they won't run out of patients any time soon, even though the cure rate is extremely high.

I think when Q1 results come out on April 22 we will see the tip of the iceberg for Sovaldi and the coming combination therapies. Gilead had just $139 million in Sovaldi revenue in Q4, and only $50 million made it to patients, the rest being stocking.

I am still hoping to bag some Regeneron (REGN), but even though it is off today at $294, I think it has to be well below $285 now for me to prioritize it over buying more GILD. Of course those who own Regeneron would argue differently, and they could be right.

At $65.19, the price I paid today, Gilead had a trailing P/E of 36.3. With Solvadi and other new drugs coming online, my best guess is still that Gilead will go well over $100 per share by the end of the year. But as with all stocks, Gilead is limited to less than 10% of my portfolio holdings.